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Boulder experts: Amazon, Whole Foods deal to make 'whole paycheck' a thing of the past

By Shay Castle

Staff Writer

Posted:
06/16/2017 04:57:54 PM MDT

Updated:
06/17/2017 07:58:19 AM MDT

Shoppers are seen coming and going at Whole Foods Market at Village at the Peaks in Longmont on Friday. Amazon announced that it is buying Whole Foods in a deal valued at about $13.7 billion. (Matthew Jonas / Staff Photographer)

Boulder's natural foods community is cheering the acquisition of organic grocer Whole Foods by online retail goliath Amazon for $13.7 billion. The move will propel the industry to even greater heights, leaders say, create a more level playing field for upstart brands and hasten the death of Big Food.

"When you take two of the most disruptive companies in the past 20 years and put them together, this is when 1 + 1 could equal 5," said Steve Hughes, founder and former CEO of Boulder Brands, and current head of investment group Sunrise Strategic Partners. "It speaks volumes for how fundamentally mainstream natural and organic brands have become."

Whole Foods has four stores in Boulder County: two in Boulder and one each in Longmont and Superior.

Traditional food companies and grocers are already feeling the heat of the mega-merger as pre-market stocks took a dive. When the markets closed Friday, Kroger was down 9 percent, Costco took a 7 percent hit and ConAgra, Campbell and General Mills had lost roughly 3 percent each.

Amazon, meanwhile, was up 2.44 percent after gaining more than $30 per share mid-day, an approximately $14 billion dollar gain, which is more than the cost of the deal. Whole Foods closed up a remarkable 29 percent on news of the transaction, expected to close later this year.

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The online retailer, in a press release, said the grocer will continue to operate its 431 stores Under the Whole Foods Market brand. Yet to be seen is if Amazon will continue Whole Foods' commitment to growing upstart natural brands, but local entrepreneurs are hopeful.

"Quinn reaches a huge number of people through both Whole Foods and Amazon," said Kristy Lewis, founder of the Boulder snack brand, which in part got its start thanks to the grocer's loan program. "I'm hopeful that the two companies together could be a very powerful force for good. Time will tell, but I remain optimistic."

New Hope Network's Carlotta Mast said more brands are going online to reach the communities their products were created for: gluten-free, allergen-free, sugar-free, dairy-free, paleo, vegan.

"Particularly if you think about entrepreneurs in Boulder, they are targeting specific niche or food tribe audiences," said Mast, senior vice president of content and insights at New Hope. "They have a very targeted customer in mind (and) Amazon really allows you to reach those specific customers."

It also saves companies money in the form of slotting fees: The amount grocery stores charge for shelf space. "It's highway robbery," said Kay Allison longtime industry market researcher and consultant who recently launched her own line of veggie-laden baked foods, Farm & Oven Snacks. "Most small food companies can't afford them."

Shoppers will also benefit from the deal in the form of lower prices, Hughes predicts, as the two entities combined will provide a scale Whole Food never achieved on its own.

"They had costs that other larger chains like Walmart didn't have," he said. Now, "they're going to have all the leverage in purchasing power from the most powerful distributor in the world."

Added Allison: "'Whole paycheck' is going to be a thing of the past."

While it may be good news for grocery shoppers, competing natural grocery stores are likely eyeing the deal with trepidation. Sprouts's stock was down more than 6 percent on Friday. Locally, Lucky's Market declined comment and a representative from Alfalfa's did not respond to a request for comment.

"This is a huge competitive threat to those grocers," said Mast. "They were already feeling pressure from Amazon, and I imagine this really increases the pressure."

She believes Boulder's shops will be able to differentiate themselves based on shopper experience, such as Lucky's recent decision to allow customers to buy and consume beer while they stroll the aisles.

"There still is that need for experience around food that you cannot replicate with ecommerce," she said. "I think the two (brick-and-mortar and online retail) can co-exist, and that's what's exciting to see what an Amazon/Whole Foods model can do."

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